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Friday, July 11, 2014

We've written quite a bit lately about the state's pension crisis and the various legislative actions that have been taken to attempt to address the shortfall in many state and local government pension funds. One of these legislative "fixes" was P.A 97-695 that amended the State Employees Group Insurance Act of 1971 to eliminate standards for the state's contributions to health insurance premiums for 3 state retirement systems. In place of these statutory standards, the Director of the Illinois Department of Central Management Services (CMS) would be authorized to determine the annual health insurance contribution required by the state and retirees.

To no-one's surprise, this legislation was challenged in court. Pensioners claimed that the legislative change in how health insurance contributions would be determined violates the pension protection clause of the Illinois constitution, among other claims. The Illinois Supreme Court recently agreed with that argument, finding that the constitutional pension protections apply to health benefit contributions. Kanerva v. Weems, 2014 IL 115811 (July 3, 2014)

At issue was an interpretation of the state constitutional provision protecting pension rights. That provision (Article XIII, section 5 of the Illinois constitution) provides as follows:

Membership in any pension or retirement system of the State...shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

The pensioners argued that this language protects not only the pension benefits, but all other retirement benefits provided to state retirees. The supreme court agreed, finding that health insurance benefits are part of the "package" of retirement benefits provided to members of state public pension systems. The court held that this constitutional provision was intended to eliminate the uncertainty for retirees, and to protect their rights from future changes that would impair those rights. In short, the court concluded that the pension rights protected by the Illinois constitution include the provision of health insurance premium subsidies.

The dissent, on the other hand, concluded that subsidized health insurance premiums are not pension benefits, so would not be covered by the constitutional provision that protects pension benefits from impairment. In the dissent's view, the majority was reading language into this provision that does not exist.